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Friday, 5 October 2012

The political destruction of NZ’s residential construction sector in one graph

Guest post by Hugh Pavletich

Study the graph below comparing the rates at which houses are being built in Australia and New Zealand, and see how the politicians and urban planners have decimated the residential construction sector in New Zealand these past 30 years.

The measure employed is the “build rate per 1000 population,” which of course appropriately factors in population changes over time.

It illustrates just what a truly massive hole this country has to dig itself out of since the industry began being bureaucratically bludgeoned back in to the Stone Age of cottage building.

It illustrates too just how incompetent the industry and professional groups have been these past few decades—more interested in political boot licking than being socially responsible.

“Crony Capitalism” has been the game—collusion between professional groups and government, and between industry and government, collusion that has reduced supply and pushed up prices with massive costs in human terms and the wider economy.

The Law Society, Real Estate Institute, Planning Institute, Property Management Institute, Resource Management Law Association, Local Government New Zealand, New Zealand Institute of Architects and Registered Master Builders should be particularly ashamed of themselves. They need to, with urgency, take a good hard look at themselves.

Add to this the appallingly high cost of new land, high purely as a consequence of planners “ring-fencing” our cities. A piece of buildable land just inside Auckland’s ring-fenced boundaries, for example, costs around 8.7 times the same piece of land just outside the planners’ ring fence—forcing people to pay way more for housing than they otherwise would have.

Little wonder then that while new starter housing is being put in place on the fringes of the affordable United States urban markets for about $US600 per square metre all up, here in New Zealand now it is a stratospheric $NZ2,500 per square metre and more all up.

No wonder we have such elevated outwards migration to Australia. And no wonder we have a non-recovery in Christchurch, because with appalling residential consenting rates of 3 per 1000 population per annum for conventional housing it’s clear no one can afford to build.

The initial reforms by the New Zealand Government to be announced mid-to-late October (they were supposed to get on to this out of the starting blocks straight after the 2008 election, but that’s another story) must, as those articles make clear, focus on land supply and appropriate infrastructure financing.

Your graph shows a declining residential construction rate 'per 1,000 head of capita'. Can you post a similar graph of the absolute construction rate? (ie the rate not adjusted per capita?)

The reason being that it may be the per capita decline in building is caused by NZ's bubble in population growth rather than a drop in actual building perhaps. It just appears we have not accelerated our building as fast as we accelerated our population (which is something both Labour and National led governments should take responsibility for!).

I agree this is compounded by NZ's (esp. Auckland's) high land costs, but that may not be caused by regulatory costs. Other factors are NZ's lack of restrictions on foreign ownership of land (allowing developers to landbank), and geographic cost pressure points (ie high land costs near port cities like Auckland & Tauranga) caused by our lack of manufacturing jobs in the hinterland and clustering of recent migrant communities in major cities.

The latter problem of manufacturing clustering round port cities is rather intractable for NZ. As an island nation, we have to export by ship or plane, so transport costs are minimised by co-location with ports and airports. Rates in provincial towns are insufficiently lower than urban rates to offset the higher transport costs for exporters and to domestic major markets. That is in contrast to continental manufacturers, say in Europe or the US. There, a manufacturer can relocate to a small town on the major transport road and/or rail routes to their markets and their transport costs don't necessarily rise, but their rates and lease costs should drop.

I also don't understand how you come to the conclusion that it is "No wonder we have such elevated outwards migration to Australia", when your graph and recent Not PC posts show Australian city land and housing costs are just as bad as in NZ (and that there are reasons for Houston being an outlier).